How To: Declare Bankruptcy

Times are tough and you've found yourself with a pile of credit card debt — and you have no way to pay off. The creditors are constantly calling, and you just want it all to go away. Bankruptcy seems like an easy option — a quick and easy court process and you get a clean slate. Right? Well, it very well may be an option, but the idea is far simpler than the reality.

Over the long haul, to declare bankruptcy is far better if you can find a way to legitimately pay your creditors. However, if you are truly in dire straits with no where to go (note that a required counseling program will determine this for you) then read on. Before whimsically going Chapter 7, 11 or 13, let’s get you up to speed on some of the facts surrounding bankruptcy, the best ways to handle the situation and the pitfalls to avoid in the process.

Do: Get educated

The laws have changed. To declare bankruptcy used to be very simple. A simple, “I can’t pay my bills” and that was it — clean slate. In 2005, new laws were passed that makes it far more difficult to declare bankruptcy. For instance, if you are seriously considering this option it is required that you go through pre-bankruptcy counseling that you will likely have to pay for. If you exceed certain income levels, repayment of the debt may be mandatory. That is, no clean slate.

If you get your filing approved, credit counseling after the fact may also be required and in most cases you will still owe the money that you defaulted on. Most importantly, regardless of the outcome and how much you have to fork over, the clean slate is not entirely true. Credit reports will show a bankruptcy filing for as long as 10 years and some creditors may keep a permanent record of this event, which could preclude you from ever doing business with that group again. Filing for bankruptcy can also be rather embarrassing and you can be assured that people can and will find out. The final step to declare bankruptcy takes place in a court of law, so there will be a public case and perhaps even public announcement in the newspaper of your filing in the legal notices section.

Do: Get help

To declare bankruptcy is a complicated issue from a legal and a financial standpoint. It will cost you a few bucks, but don't go down the path to bankruptcy alone. Research and hire a reputable bankruptcy attorney to help guide you through the process. You will certainly be feeling vulnerable at this time, so be extra cautious not to fall for "erase your debt" or "quick fix" plans, particularly if they involve up-front money. A licensed attorney or adviser will quickly tell you those are not the paths to go down, and in some cases they can actually have worse impacts on your financial future than bankruptcy itself. Furthermore, facing the stress and feeling as though you've hit rock bottom is not an easy place to be, so make an effort to confide in a close friend or family member about the situation. It is embarrassing, but you will need to experience this humiliation and rely on a support group to help with some of the emotional fall out. The American Bankruptcy Institute offers a free search of certified attorneys in your area and educational resources and articles.

Learning to declare bankruptcy properly could save you in the long run...